Sectoral Trading Volume and Macroeconomic Forces: Empirical Evidence from Dhaka Stock Exchange

This empirical study examines the impact of macroeconomic variables on stock market trade volume across various industrial sectors listed in the Dhaka Stock Exchange Ltd. (DSE) of Bangladesh. The macroeconomic variables are the industrial production index, the inflation rate, the official exchange rate, the maturity structure of interest rates, and the risk premium. The industrial sectors considered in this study are engineering, textile, ceramics, tannery, cement, fuel & power, and food & allied industries. The study used monthly data over the period of January 2006 to December 2023. The ordinary least squares regression (OLS) method is employed as the baseline method with robustness checks through fully modified ordinary least Squares (FMOLS) and dynamic ordinary least Squares (DOLS) methodologies. The results of the study reveal that the exchange rate and the risk premium have significant positive effects on stock trade volume across all industrial sectors, regardless of the methodology used. The impact of the industrial production index and the maturity structure of interest rates was found to be sector-sensitive. The application of DOLS and FMOLS confirms the consistency and robustness of the findings. These important findings are expected to help investors in portfolio management. The managers of firms in these sectors should be aware of the influences of the macroeconomic forces on trade volume in their pursuit of value maximization.